KUALA LUMPUR: Market observers believe Tesco Plc's (Tesco) consideration to sell its Asian operations allows the supermarket chain to focus on home country and Central Europe operations.
Asian operations for the British multinational groceries and general merchandise retailer has been growing strongly since 2015 and 2016, noting that Thailand operations has been the exceptional performer compared to Malaysia.
One market observer opined that Tesco's business 'has been good in Asia and thus it is attracting potential buyers.'
On Sunday, Tesco was reported to be contemplating to exit its businesses in Asia with the potential stake sale in Malaysian and Thailand stores.
In a statement released on Sunday, Britain’s supermarket confirmed it was undertaking a review of the strategic options including an evaluation of a possible sale, following inbound interest from unnamed player.
“The evaluation of strategic options is at an early stage. No decisions concerning the future of Tesco Thailand or Malaysia have been taken,” it said.
Tesco said there can be no assurance that any transaction will be concluded. “A further announcement will be made if and when appropriate,” it added.
Retail experts said the local convenience store has evolved drastically over the years, prompting retailers to offer a new concept such as dining experience at their stores.
He said this new concept has attracted more foot traffic as retailers focusing on catering to fast-moving consumer goods.
Sime Darby Bhd (Sime Darby) had previously said the conglomerate was on the lookout to dispose its 30 per cent stake in Tesco Stores (Malaysia) Sdn Bhd (Tesco Malaysia).
Sime Darby group chief executive officer Datuk Jeffri Salim Davidson said the company’s plan was part of its initiative to divest its non-core business.
However, Sime Darby said it was unable to comment on behalf of Tesco Plc following the latter’s announcement of the potential exit in Asia.
“Sime Darby is committed to creating value for our stakeholders and will continually assess strategic options to divest our non-core assets, in order to focus on our core trading businesses of Industrial and Motors,” Sime Darby spokesperson told the New Straits Times today.
He said the company would make the necessary announcements in accordance with Bursa Malaysia’s disclosure requirements.
Tesco Malaysia employs over 7,000 people across 60 stores nationwide, head office and two distribution centres.
Meanwhile, Tesco Lotus operates 1,967 stores in Thailand, according to news report. It was learnt that both operations employ over 60,000 people.
It was reported that businesses in both countries made combined revenues of £4.9 billion in the year ending in February, making a profit of £286 million or contributing about a fifth of Tesco’s total global profits.
Tesco’s chief executive, Dave Lewis had previously highlighted growth opportunities in the Asian business, including plans to open another 750 convenience stores in Thailand.
The Guardian said Asian business is growing faster than Tesco’s core business and is more profitable, with margins of about six per cent compared with less than three per cent in the UK and Ireland and the central European arm that operates in Poland, the Czech Republic, Slovakia and Hungary.
According to report, the sale of the Asian business would leave Ireland and central Europe as Tesco’s only remaining non-UK operations, representing the almost complete retreat from the international supermarket empire formed by Sir Terry Leahy.
Tesco has left Japan, the US and Turkey in recent years as part of the company’s turnaround programme, amid the stiff competition from rival supermarket chains and online competitors.
The current announcement also signalled another potential pullback by Tesco from its global expansion.
BBC reported the Tesco’s Asian operation was a ‘trophy asset’ as likely to achieve a knock-out price, when quoting an analyst at Short Capital, Clive Black.
The report also highlighted the valuation of £6.5 billion to £7.2 billion seemed ‘fair’, according to Bruno Monteyne, analyst at Bernstein.